Life Insurance Advice

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21-03-2019

What is Life Insurance?

Life Insurance pays out on the policyholder’s death, providing loved ones with a cash lump sum so they can cover any financial obligations that are left behind.

There are a few different types cover you could consider, which is where getting Life Insurance advice is so valuable.

Types of Life Insurance

There are four main types of Life Insurance:

  • Term Life Insurance
    Either decreasing (so the benefit falls over time) or level (so the benefit stays fixed); designed to cover you financially against the risk of death for a set period of time
  • Mortgage Life Insurance
    Similar to Term Life Insurance, but with the cover specifically aligned both in terms of level and length of cover with an outstanding mortgage debt
  • Family Income Benefit
    Instead of receiving a lump sum, your family receives a regular income for the remaining term of the policy should you pass away whilst the policy is in force
  • Whole of Life Insurance
    Life Insurance that lasts for your whole life providing you continue paying the premiums; it’s typically used for inheritance tax purposes or funeral expenses.

Do I Need Life Insurance?

If you’re wondering whether you need Life Insurance, put yourself or your family in some of the common scenarios below and ask yourself how you’d cope if it happened to you.

  • According to our Wealth & Protection Survey 2017, 39% of Brits had less than £1,000 in savings. If the breadwinner in the household passed away, would the household have enough savings and ongoing income to cope?
  • The same survey also found a quarter of UK workers have an outstanding mortgage of at least £100,000 – could you keep up with repayments if the main earner in your household passed away?
  • Would clearing your mortgage be enough if you passed away or would your family need extra cash on top to help them cope with your loss?
  • With the average funeral costing more than £4,000(1) would there be funds available to cover this? Or would your loved ones have to pay for it out of their own pocket?
(1) – SunLife Cost of Dying report 2018
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How Much Does Life Insurance Cost?

The cost of Life Insurance depends largely on one major factor: how much you’re going to insure yourself for.

This will be different for everyone and will depend on your needs, the type of policy you’re taking out and any liabilities you’re looking to cover.

The more you want to insure yourself for the higher the cost of premiums.

Other factors that will influence the cost of Life Insurance are less in your control. While you can opt for a lower benefit to reduce the cost of cover, your Life Insurance premiums are based on factors that are far harder, if not impossible, to change. These include:

  • Your age
    The older you are at the start of the policy, and when you want the policy to end, the higher the premiums you should expect to pay.
  • Your state of health
    Your current state of health will have a big impact on the cost of cover, particularly if you’re overweight or have medical conditions, such as high blood pressure or diabetes
  • Your medical history
    Life Insurance is less concerned with minor medical conditions you’ve suffered from in the past, such as back pain, but if you’ve suffered from a serious medical condition such as cancer or diabetes, it will increase the cost of cover
  • Your smoking status
    While Life Insurance for smokers is possible, it costs more due to the increased risk you present to the insurer.

The Risk of Passing Away

Based on the latest government life expectancy data, Drewberry’s Life Expectancy Calculator works out the risk of death of the average person over a set period. Below is the risk of death in the next 20 years for a male of three different ages:

25 Years Old

35 Years Old

45 Years Old

1 in 40

1 in 20

1 in 9

samatha haffenden-angear, independent protection expert at drewberry

As you can see, the risk of you passing away during a policy’s term increases significantly as you age, which is why Life Insurance costs more the older you are.

Given this, it can be be beneficial to take out cover when you’re young and healthy to lock in cheaper premiums.

Samantha Haffenden-Angear
Independent Protection Expert at Drewberry

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Top Life Insurance Tips

  • Joint or Single Life Insurance?

    If you’re married or in a civil partnership, or have joint interests, you may be considering Joint Life Insurance.

    This is Life Insurance covering two people under one policy and may seem especially attractive for those wanting to life cover for a joint mortgage.

    This is usually cheaper than having two single Life Insurance policies, but for a very good reason. That’s because Joint Life Insurance only pays out once, usually on a joint life first death basis, so will only pay out on one partner’s death.

    This would leave the surviving partner uninsured, at a point in their life where they may be older and suffering / having suffered from any number of medical conditions, making getting Life Insurance from scratch far more expensive.

    The alternative is to buy two Single Life Insurance policies, one for each half of the couple. This works out slightly more expensive at the start but usually only by a few pounds, and the benefit of doing so is that you’ll have secured two payouts, one for each person.

  • Should I Add Critical Illness Cover?

    One of the biggest considerations when it comes to Life Insurance is whether or not to add Critical Illness Cover.

    Critical Illness Cover will pay out if you develop a critical illness as well as on death. The critical illness must be one specified by the insurer; the most common illnesses covered are cancer, heart attacks and strokes.

    In the unfortunate event this happens to you, you’ll receive the same lump sum. You may receive only a proportion of the benefit depending on how serious the illness is – a less serious heart attack, for example, may only trigger a 25% payout, so you need to read the terms and conditions carefully.

    Adding Critical Illness Insurance to your life cover provides insurance against the risk of serious illness and disability as well as death. Many people prefer to have this additional backup as a critical illness can be no less devastating for the family’s finances than death.

    Do I Need Critical Illness Cover?

    While Critical Illness Cover can add valuable protection to your Life Insurance, it may not necessarily be the answer if you’re concerned about long-term incapacity.

    Critical Illness Cover pays out a lump sum, which could quickly be used up if you’re off work long-term, especially if you use it to repay a mortgage debt and then have little else left to live on.

    It may therefore make more sense to just have straightforward Life Insurance and a comprehensive Income Protection policy running alongside it to provide you with a continuation of income if you can’t do your job for any medical reason, potentially for as long as you need it.

    Income Protection is designed to pay out a steady income to you if you’re off work for any medical reason, with the best policies being long-term that will pay out until you retire if you can never work again.

  • Should I Index-Link My Life Insurance?

    You have the option to index-link your Life Insurance to ensure that the benefit retains pace with inflation over time.

    This is not so much an issue with Decreasing Term Life Insurance, as the benefit for this is supposed to fall over time and is therefore less at the mercy of inflation.

    However, where the benefit is fixed – such as for Level Term Insurance, Family Income Benefit and Whole of Life Cover – the amount you’re insured for could be eroded by inflation and therefore be worth less in real terms when your family needs to claim years down the line.

    With Life Insurance being such a long-term benefit – policies often span decades – it’s important to consider the impact of inflation and whether your family could cope if the benefit you secure today had a lower purchasing power in the future.

    Index-linking the benefit prevents this erosion, as your benefit will rise with inflation each year. Your premiums will rise along with the rate of inflation to take into account your increased benefit, but the reality is you’re inflation-proofing your loved ones’ future.

  • Do I Need to Write My Life Insurance Into Trust?

    When you set up Life Insurance, it’s best to plan carefully to ensure your loved ones will have exactly the right amount they need.

    HMRC taking a chunk out of this carefully-calculated amount could therefore leave your loved ones in considerable financial hardship.

    It’s important to realise that Life Insurance paid to the deceased, e.g. into a bank account belonging to them, will be valued as part of their estate. In this case, you will have to pay inheritance tax on Life Insurance.

    Many people don’t realise this and could therefore be in for a shock when they receive a demand for a 40% slice of a Life Insurance benefit from the taxman!

    Beware of Inheritance Tax on Family Income Benefit

    Although Family Income Benefit provides an annual income, for inheritance tax purposes HMRC will calculate the full amount of the benefit you’re receiving by multiplying your annual payment by the number of years you’ll be receiving it.

    Even a fairly modest benefit of £17,000 per annum over 20 years adds up to £340,000, well above the single person’s IHT threshold of £325,000.

    Your family may therefore have to find cash upfront to pay an inheritance tax bill on an income they won’t receive for many years.

    Unmarried Couples Beware Potential Inheritance Tax Issues

    If you’re not married, the tax implications are especially punitive. Married couples and civil partners enjoy an unlimited IHT exemption, so as much as desired can pass between spouses at the first spouse’s death.

    However, with a rising number of unmarried couples living together and named in each other’s Life Insurance, it’s rapidly becoming the case that this marriage exemption is available to fewer and fewer people.

    Avoid IHT with Life Insurance Trusts

    To avoid your benefit being paid into your estate, you have the option to write your Life Insurance into trust.

    Putting your Life Insurance into trust means it’s outside your estate and so won’t be counted towards your inheritance tax limit, which is useful for tax planning and making sure a chunk of your Life Insurance benefit doesn’t get eaten up by the taxman. That way, your family gets everything you intended them to receive.

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Life Insurance Advice: Setting Up a Policy

To set up a Life Insurance policy, the first step is to research the whole UK market to compare policies and work out which one is best for you.

Only once you’re armed with all of the details from the leading insurance providers can you make a decision on the best policy for your needs.

Medical Underwriting

Everyone is medically underwritten for Life Insurance. This means that, on application, you’ll be asked a series of medical questions to determine your health and the level of risk you present to the insurer, which will ultimately be translated into the cost of your premium.

Sometimes, insurers require further medical evidence than just your disclosures on the application, which may be as a result of:

  • Your age
  • The benefit you’re applying for
  • Your state of health
  • Your BMI
  • Family history of illness
  • Smoker status
  • Any combination of the above.

Life insurers have set thresholds, or ‘triggers’, above which further medical evidence will be required. Medical evidence allows an insurer to better work out what the premium should be and assess the risk your pose accordingly.

Unfortunately, there’s no easy answer to whether the insurer will need further medical evidence.

This is because a younger person can apply for a higher benefit without the insurer needing medical evidence, whereas an older person applying for the same benefit could need a medical.

The younger person represents less of a risk to the insurer and the insurer is therefore willing to cover their life for a higher benefit without medical evidence than they would be willing to insure a higher-risk, older person.

Life insurance and Existing Health Conditions

The same is true for your state of health. Two people of the same age could apply for the same Life Insurance benefit but one might need medical evidence because they’ve ‘triggered’ the insurer’s criteria because of their medical history.

Again, the person with a health condition presents a higher risk to the insurer and the insurer may therefore require medical evidence to insure them even as they insure the healthy person for the same benefit based on the application alone.

Will I Need a Medical for Life Insurance?

In some cases, you will need a medical for Life Insurance, yes. This will depend on how much you’re looking to insure yourself for, how old you are and your existing state of health.

A full Life Insurance medical could involve a medical assessment by a doctor, which will be entirely paid for by the insurance company and done at your convenience.

They’re often held in private clinics around the country or alternatively you may be able to arrange someone to come to you. This will involve a full health MOT, including blood tests.

A less invasive medical may be a nurse’s screening, where a qualified nurse visits your home or place of work and does basic tests, such as your height, weight and blood pressure.

Sometimes, it may necessary for an insurer to write to your GP to collect your medical history. This could be especially likely if you’ve disclosed a pre-existing medical condition.

GP reports could be required on top of medical screenings – it all depends on you as an individual and what you disclose on your application.

Life Insurance With No Medical

It is possible to get Life Insurance with no medical screening, especially Whole of Life / Over 50s Life Insurance.

You may be able to get Life Insurance without a medical screening beyond the questions asked at application if you don’t trigger any of the insurer’s requirements for further medical evidence, such as a high benefit, older age, medical history, a combination of these or any other conditions that prompt the need for a medical.

Best 10 UK Life Insurance Companies

Below is a high-level overview of the top 10 UK life insurers each with their own policy details and their own way of assessing medical history.

aegon

Aegon

Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
aig

AIG

US insurance giant American International Group, Inc. (AIG) was first founded in 1919 and since then has grown to operate on a global scale. It provides a range of protection products for both individuals and businesses.

  • Minimum entry age: 18
  • Maximum entry age: 88
  • Minimum term: 2 years
  • Maximum term: 70 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
aviva

Aviva

Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
guardian

Guardian

Guardian is a relaunched protection brand with a number of unique features to its policies.

  • Minimum entry age: 18
  • Maximum entry age: 65
  • Minimum term: 1 year (Level and Increasing Cover) / 5 years (Decreasing cover)
  • Maximum term: 72 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: £15 million
legal & general

Legal & General

L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies

  • Minimum entry age: 18
  • Maximum entry age: 77
  • Minimum term: 1 year (Level Cover) / 5 years (Decreasing cover)
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
liverpool victoria

Liverpool Victoria

LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members.

  • Minimum entry age: 17
  • Maximum entry age: 79 (Level or Decreasing cover) / 59 (inflation-linked cover)
  • Minimum term: 5 years
  • Maximum term: 45 years
  • Maximum cover: Unlimited
royal london

Royal London

Royal London previously operated Scottish Provident and Bright Grey as separated brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both were merged into the main Royal London brand.

  • Minimum entry age: 18
  • Maximum entry age: 70
  • Minimum term: 1 year
  • Maximum term: 72 years
  • Maximum cover: Unlimited
scottish widows

Scottish Widows

Founded in 1812, Scottish Widows is today part of Lloyds Banking Group.

  • Minimum entry age: 18
  • Maximum entry age: 79 (must end before individual’s 90th birthday)
  • Minimum term: 1 year (Level and Increasing) / 3 years (Decreasing)
  • Maximum term: 72 years
  • Maximum cover: £25,000,000 (Level and Decreasing) / £15,000,000 (Increasing)
vitality

Vitality

Vitality entered the UK market in 2007 with a joint venture with PruHealth and PruProtect, part of the Prudential Group. It has since bought out Prudential and is now branded solely as Vitality.

  • Minimum entry age: 16
  • Maximum entry age: 74 (cover must end before age 90)
  • Minimum term: 5 years
  • Maximum term: No maximum (cover must end before age 90)
  • Maximum cover: £20,000,000
zurich

Zurich

Zurich is a Swiss-based global insurance giant, operating in more than 170 countries. It employs around 55,000 employees worldwide, including 4,500 in the UK.

  • Minimum entry age: 16
  • Maximum entry age: 83 (must end before individual’s 90th birthday)
  • Minimum term: 1 year
  • Maximum term: 50 years
  • Maximum cover: £40 million

Get Expert Life Insurance Advice

When there are so many different providers each with their own approach to setting up cover it can be tricky to know which one will be most suitable for your needs. We exist to help you make an informed decision and find the most cost-effective solution for your situation.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

  • There is no fee for our service
  • We are independent and impartial
    Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
  • We’ve got bargaining power on our side
    This allows us to negotiate better premiums for you than you going direct yourself.
  • You’ll speak to a dedicated expert from start to finish
    You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
  • Benefit from our 5-star service
    We pride ourselves on providing a 5-star service, as can be seen from our 2748 and growing independent client reviews rating us at 4.92 / 5.
  • Gain the protection of regulated advice
    You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
  • Claims support when you need it the most
    You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
Tom Conner Director at Drewberry

Not only are our advisers highly qualified to offer you Life Insurance advice, but arranging these policies day in, day out we know all the tips and tricks to pass on.

Taking advantage of our knowledge and expertise comes at no cost to you, so why not give us a call today on 02084327333 or email us at help@drewberry.co.uk.

Tom Conner
Director at Drewberry

Great service assisting me obtain the right product. Would happily recommend Drewberry following their professional and efficient way of working.

Jonathan Chadwick
08/06/2020
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